The 8 Most Common Retirement Myths

March 28, 2012 - PRLog -- 1.   Social Security will cover my living expenses during my retirement years. According to 2011 article in The Hill, One third of seniors rely on Social Security benefits for at least 90 percent of their income. The average monthly benefit for a woman was approximately $1,000 and for a man $1,330. These figures are less than half the median income in the United States that same year. Most of us would not want to be forced to live on Social Security alone. Clearly, retirees need other sources of income than Social Security.
2.   Living expenses are reduced in retirement.  While some retirees might have paid off their mortgages and no longer have the expenses associated with working, it does not necessarily follow that expenses are reduced during retirement.  The costs of commuting to work, eating meals away from home, maintaining a proper work place wardrobe, etc. are no longer part of the retiree’s budget. However, health care costs increase with age. Leisure time presents opportunities to pursue one’s passions such as travel. The prudent pre-retiree should plan on having enough income to replace his/her preretirement income. It is easier to curtail unnecessary expenses than to significantly earn more money during one’s retirement years.
3.   Saving for retirement can wait till I am in my fifties. Unfortunately too many people find themselves in this situation.  At this time in their lives they will not be able to save enough money to maintain their pre-retirement lifestyle. Their choices are not encouraging.  Even if they were able to save 100 percent of their income, they would still face the unpleasant prospect of outliving their money. Those who put this themselves in this situation must either reduce their retirement standard of living, work past the normal retirement age (if this is possible), or a combination of both.
4.   Inflation is something than can be ignored. Inflation is defined as the decline in the amount of goods and services that can be purchased with a fixed sum of money.  Bu definition most retirees must live on a fixed income and therefore must consider the impact of inflation on their retirement.  To put this in perspective those born in 1940 and retiring at age sixty in 2005 would have seen inflation average 4.2 percent over their lifetime. Based on the actual annual rates of inflation, those persons upon reaching retirement age would have found that it would take $17.14 to purchase what $1.00 purchased in 1940 when they were born.
5.   Planning for deteriorating health can be ignored. We all don’t want to admit that at some time in our senior years that we would be unable to care for ourselves.  Assisted living support can be expensive and last through our declining years. Medicare/Medicaid can provide some assistance, but only for the destitute.  Fortunately, there are long term care insurance plans that can pay for such expenses. As with most people centric insurance costs increase with age and health issues.  When the insurance is most needed it most probably will be unattainable.  Therefore, it behooves the pre-retiree to consider such coverage while they can obtain affordable coverage.
6.   Equity in my home can pay for my retirement. As the recent years have demonstrated, homes can lose value and in certain locales significantly. A home should be considered a place to live in and not a primary source of retirement income. The prudent pre-retiree should consider his home equity as a source of emergency funds and nothing more.
7.   A significant portion of a retiree’s portfolio should be in fixed income securities.  This has been and continues to be the conventional wisdom among purveyors of financial advice.  While fixed income investments can provide a predictable stream of income, given the current interest rate environment their returns do not even keep up with inflation. A $1,000,000 retirement fixed income investment would produce $50,000 a year assuming a 5 percent rate of interest. At a 1 percent rate, one would need $5,000,000 in order to produce the same income. The retiree is almost forced to consider investments that could produce more income, albeit with higher risk.
8.   A written retirement plan is unnecessary.  Like all plans there are a myriad of reasons to delay or even avoid preparing a written plan.  Some people think that having a will that distributes one’s assets upon their demise is a retirement plan. A retirement plan should describe the lifestyle a pre-retiree desires and the steps that must be taken to achieve their goals.  In addition, it should contain the projected value of their investments on a year by year basis.  At least four times a year, the plan should be reviewed to monitor progress against its milestones. Where appropriate it may be necessary to change one’s goals and investment strategies.

This article is based on A Common Sense Road Map to Uncommon Wealth, The Key to Achieving Financial Success by Marvin H. Doniger.  Further information on this book and his other books, A Common Sense Approach to Successful Investing, Utilizing the Power of Stratamentical Analysis, and Common Sense Prescriptions for Financial Health, Improving Your Quaestrology can be found at www.BooksByDoniger.com.

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Marvin Doniger has written A Common Sense Road Map to Uncommon Wealth and A Common Sense Approach to Successful Investing. He is a regular guest on Business Talk Radio Network and other radio shows. His articles have been published in Morningstar.